Britain's G4S looks beyond small change in cash revolution

EDINBURGH (Reuters) - Global security and cash management firm G4S (GFS.L) expects notes and coins to drive its business, even as their usage falls in favor of electronic transactions around the world.

Although data compiled by the British company best known for transporting banknotes in armored vans shows people are increasingly paying for anything from their daily coffee to online bargains with cards and mobiles, Chief Executive Ashley Almanza said G4S is defying its own expectations.

“Our fastest growing service line anywhere in the world in the last three years has been cash solutions in the United States,” Almanza told Reuters in a telephone interview.

The death of cash has long been predicted and in Sweden the number of cash payments in shops has dropped by almost half to 20 percent from 39 percent between 2010 and 2015.

However, in Europe as a whole, G4S says 80 percent of point-of-sale transactions are still conducted in physical currency.

G4S designs and implements software which cuts corporate costs by reducing the time, effort and manpower needed to count and manage payments of all types over tills, Almanza said.

And its cash management services in the United States, where the use of notes and coins for shopping only makes up 31 percent of sales over the counter and it does not have its own fleet of vans, is more profitable than any other of its businesses.

“It is a better margin” than for our overall business, Almanza said, without giving further detail.

UBS estimates that profit margins in G4S’s cash solutions business are around the mid-teens versus around 10 percent for cash-in-transit activities and around 5 percent for manned guarding operations.

Almanza, a 55-year-old South African, took over the top job at G4S, which operates in 90 countries and has 570,000 staff, in 2013 and has helped it to recover from unprofitable contracts, although shares are up just 5 percent since he took over.

Cash solutions now make up 16 percent of G4S’s 7.4 billion pounds ($10.4 billion) annual sales, while secure solutions —its guarding and alarm business— deliver three quarters of its revenue. Care and justice, where it operates secure centers and prisons, make up just 7 percent.

G4S, which posted 2017 core profit before tax of 496 million pounds, is finding that its service is also winning business with U.S. banks such as Bank of America Merrill Lynch.

Meanwhile in Europe, a new cash management product which helps retailers offer all payment options in the Netherlands, “G4SPay”, is delivering a margin above the group’s average, Almanza said.

SAFE AS HOUSES

Almanza expects G4S’s cash business to continue growing faster in advanced economies for another one to two years, while emerging markets will provide other opportunities.

G4S’s World Cash Report, which chimes with central bank data, found three quarters of online purchases in the Middle East and Asia are paid for in cash on delivery.

“People are very attached to cash because you know where you stand with it, it’s anonymous, you don’t have to give your data to people and with things like data privacy and cyber-security this has really come to the fore in the last couple of months.”

A G4S smart safe product, which manages cash for retailers akin to an in-store teller machine, is growing at “double digit rates from a relatively small base” in South Africa and Kenya.

And the G4S report cites taxi service Uber [UBER.UL] as an example of a business, famed for its electronic payment system, which saw exponential growth when it introduced a cash option in Asia, Africa and South America.